Electric rates will climb 10 percent

Phyllis Booth Reporter

Thursday

Jun 21, 2007 at 12:01 AM

PRINCETON - Electric light customers will see a 10 percent hike in their rates effective in the August bill.

At their June 13 meeting, light commissioners voted to increase the rates based on recommendations from a recent study conducted by Charles Underhill, Manager of Rates and Planning, Vermont Public Power Supply Authority.

Last fall, commissioners agreed to pay for a study that would help guide them in setting electric rates for the next several years to maintain a positive cash flow and provide working capital to upgrade the distribution system.

In March 2006, Fitch presented commissioners with a list of long-term capital projects including upgrading the substation on Mountain Road, underground projects on Hickory Drive, upgrades on Dowds Lane, purchasing transformers and poles and replacing the roof on the PMLD building on Worcester Road. At that time, commissioners acknowledged they could not fund the capital needs.

"We've replaced over 200 poles over the past few years," said Fitch. "We could go through two or three loads of poles a year, but at the rate of $20,000 a load we can't afford to do that, and that doesn't include transformers. We have 500 transformers to replace and I try to buy 20 a year."

The last rate study was done in 1998 and the last rate increase (5 percent) was in March 2005. There have been seven rate hikes over the past 23 years. Since September 2005 when PMLD lost its long-term power supply contract, an adjustment factor, or PPA (Purchase Power Adjustment) has been used to adjust customers' bills for higher power costs. The PPA has averaged approximately $.0312 per kilowatt-hour. The average monthly consumption of a PMLD customer is 800 kilowatts per month with an average monthly bill of $130.

Underhill said he compared the retail cost of service against the PMLD's cost and found the department comes up short. "You want to be more secure and have a positive cash flow for capital improvements," he said. "You also want to make sure you don't get caught short of cash in terms of long-term expenses, and build reserves. How much does PMLD need to do business as usual?"

Fitch had asked Underhill to look at maintaining a 12.5 percent working capital allowance and how to deal with capital improvements in light of inflation. He'd also asked Underhill to look at a rate of return that would establish a cushion for major expenses or unplanned rises in market expenses.

Based on the budget estimates provided and financial objectives, Underhill's report states PMLD will require cumulative rate increases over the next five years. Starting with an 18.6 percent in the first year to cover the anticipated cost of operations and to meet the desired revenue targets. The bulk of the increase would come in the first year, according to Underhill.

The study suggests at least a 10 percent rate increase in year one with adjustments in other years. Commissioners agreed on a 10 percent hike starting with July usage that customers will see reflected on their August bill. "We need to look at this as a fiveyear plan," said Fitch.

"The first year (2007) there's a big hit. The other years go down," said Commissioner Scott Bigelow.

Customers would rather see a fixed rate rather than a PPA that changes each month, so they can budget, said Fitch.

The new rate of 0.1607 per kilowatt-hour would translate to an increase of approximately $12 per month for the average customer using 800 kilowatts of electricity.